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Comment: Will Germany fix its capital markets regulation now?


Yesterday evening it was revealed that German billionaire Adolf Merckle, 74, had committed suicide on Monday night, apparently throwing himself in front of a train on a line near his home

Yesterday evening it was revealed that German billionaire Adolf Merckle, 74, had committed suicide on Monday night, apparently throwing himself in front of a train on a line near his home in the village of Blaubeuren, near Ulm in southern Germany.

‘The distress to his firms caused by the financial crisis and the related uncertainties of recent weeks, along with the helplessness of no longer being able to handle the situation, broke the passionate family businessman, and he ended his life,’ the family said in a statement.

The Merckle family’s pharmaceuticals business has been hard hit by the economic downturn. Their holding company, VEM Vermögensverwaltung, last month secured a bridging loan from its banks, but the German press say the company remained under pressure to sell assets.

The family fortune was estimated by Forbes at USD9.2bn last year and even after the sudden downturn of the past few months it is still estimated to be more than USD5bn. But VEM also revealed that it was one of the victims of the ‘short squeeze’ on Volkswagen shares carried out by auto manufacturer Porsche last year, suffering losses in the hundreds of millions of euros.

Last October Porsche, which has been steadily accumulating shares in Volkswagen for three years, suddenly announced that it owned nearly 43 per cent of the company’s shares outright and had derivative contracts on nearly 32 per cent more, catching unawares hedge funds and other short sellers that had calculated that the shares were overvalued.

With Volkswagen’s actual free float substantially less than the volume of shares sold short, short sellers were forced to buy shares at any price to cover their trades, driving VW’s market valuation through the roof. Porsche made a killing, but critics angrily pointed to the lack of transparency in German capital markets business that made the short squeeze possible.

The events of last October have now been painfully recalled to mind, ironically, on the day that Porsche announced that its stake in Volkswagen had risen above 50 per cent. One can only wonder whether the Merckle tragedy will remind the German authorities of the need to bring financial reporting practices into line with accepted international standards.

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